[Federal Register Volume 60, Number 115 (Thursday, June 15, 1995)]
[Notices]
[Pages 31522-31527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14686]
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SECURITIES AND EXCHANGE COMMISSION
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc., Relating to
Mediation of Disputes
[Release No. 34-35830; File No. SR-NASD-95-25]
June 9, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 6,
1995,\1\ the National Association of Securities Dealers, Inc. (``NASD''
or ``Association'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the NASD.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
\1\The NASD amended the proposed rule change subsequent to its
original filing on May 19, 1995. Amendment No. 1 was a minor
technical amendment, the text of which may be examined in the
Commission's Public Reference Room. See Letter from Suzanne E.
Rothwell, Associate General Counsel, NASD, to Mark P. Barracca,
Branch Chief, Over-the-Counter Regulation, Division of Market
Regulation, SEC (June 2, 1995).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend the Code of Arbitration Procedure
(``Code'') by adding a new Part IV to set forth rules to govern the
administration of mediations. The NASD is also proposing to amend
Sections 37, 43 and 44 of the Code\2\ to add fee and other provisions
relating to the administration of [[Page 31523]] mediations. Below is
the text of the proposed rule change. Proposed new language is in
italics.
\2\NASD Manual, Code of Arbitration Procedure, Part III, Secs.
37, 43 and 44, (CCH) Paras. 3737, 3743, 3744.
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Code of Arbitration Procedure
* * * * *
Record of Proceedings
Sec. 37. (a) A verbatim record by stenographic reporter or tape
recording of all arbitration hearings shall be kept. If a party or
parties to a dispute elect to have the record transcribed, the cost of
such transcription shall be borne by the party or parties making the
request unless the arbitrators direct otherwise. The arbitrators may
also direct that the record be transcribed. If the record is
transcribed at the request of any party, a copy shall be provided to
the arbitrators.
(b) A verbatim record of mediation conducted pursuant to Part IV of
this Code shall not be kept.
* * * * *
Schedule of Fees for Customer Disputes
Sec. 43.
* * * * *
(i) Each party to a matter submitted to a mediation administered by
the Association where there is no Association arbitration proceeding
pending shall pay an administrative fee of $150.
(j) The parties to a mediation administered by the Association
shall pay all of the mediator's charges, including the mediator's
travel and other expenses. The charges shall be specified in the
Submission Agreement and shall be apportioned equally among the parties
unless they agree otherwise. Each party shall deposit with the
Association their proportional share of the anticipated mediator
charges and expenses, as determined by the Director of Mediation, prior
to the first mediation session. Mediator charges, except travel and
other expenses, are as follows:
(1) Initial Mediation Session: $600 or four (4) times the
mediator's hourly rate agreed to by the parties and the mediator; and
(2) Additional Mediation Sessions: $150 per hour, or such other
hourly rate agreed to by the parties and the mediator, per hour or
portion thereof.
Schedule of Fees for Industry and Clearing Controversies
Sec. 44.
* * * * *
(j) Each party to a matter submitted to a mediation administered by
the Association where there is no Association arbitration proceeding
pending shall pay an administrative fee of $250.
(k) The parties to a mediation administered by the Association
shall pay all of the mediator's charges, including the mediator's
travel and other expenses. The charges shall be specified in the
Submission Agreement and shall be apportioned equally among the parties
unless they agree otherwise. Each party shall deposit with the
Association their proportional share of the anticipated mediator
charges and expenses, as determined by the Director of Mediation, prior
to the first mediation session. Mediator charges, except travel and
other expenses, are as follows:
(1) Initial Mediation Session: $600 or four (4) times the
mediator's hourly rate agreed to by the parties and the mediator; and
(2) Additional Mediation Sessions: $150 per hour, or such other
hourly rate agreed to by the parties and the mediator, per hour or
portion thereof.
* * * * *
Sec. 47 Reserved.\3\
\3\These new ``reserved'' sections are being added to provide
room for additional new provisions of the Code that should precede
the mediation provisions.
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Sec. 48 Reserved.
Sec. 49 Reserved.
PART IV--MEDIATION RULES
Scope and Authority
Sec. 50. (a) The NASD Mediation Procedures (``Procedures'') set
forth in this Part shall apply to the mediation of any dispute, claim
or controversy (``matter'') administered by the Association.
(b) A Director of Mediation shall be designated by the Association
to administer mediations under these Procedures. The Director will
consult the Association's National Arbitration Committee on the
administration of mediations and the Committee shall, as necessary,
make recommendations to the Director and recommend to the Board of
Governors amendments to the Procedures. The duties and functions of the
Director may be delegated as appropriate. For purposes of this Part,
the term ``Director'' refers to the Director of Mediation.
(c) Neither the NASD nor any mediator appointed to mediate a matter
pursuant to these Procedures shall have any authority to compel a party
to participate in a mediation or to settle a matter.
Submission of Eligible Matters
Sec. 51. Any matter eligible for arbitration under this Code, any
part thereof, or any issue related to the matter, including procedural
issues, may be submitted for mediation under these Procedures upon the
agreement of all parties. A matter will be deemed submitted when the
Director has received an executed Submission Agreement for each party.
The Director shall have the sole authority to determine if a matter is
eligible to be submitted for mediation.
Arbitration Proceedings
Sec. 52. Unless the parties agree otherwise, the submission of a
matter for mediation shall not stay or otherwise delay the arbitration
of a matter pending under this Code.
Mediator Selection
Sec. 53. (a) A mediator may be selected: (1) by the parties from a
list supplied by the Director; (2) by the parties from a list or other
source of their own choosing; or (3) by the Director if the parties do
not act to select a mediator after submitting a matter to mediation.
(b) With respect to any mediator assigned or selected from a list
provided by the Association, the parties will be provided with
information relating to the mediator's employment, education, and
professional background, as well as information on the mediator's
experience, training, and credentials as a mediator. Any mediator
selected or assigned to mediate a matter shall comply with the
provisions of Sections 23(a), (b) and (c) of the Code, unless, with
respect to a mediator selected from a source other than the
Association's list, the parties elect to waive such disclosure.
(c) No mediator shall be permitted to serve as an arbitrator of any
matter pending in NASD arbitration in which he served as mediator,
marshall the mediator be permitted to represent any party or
participant to the mediation in any subsequent NASD arbitration
proceeding relating to the subject matter of the mediation.
Limitation on Liability
Sec. 54. The Association, its employees, and any mediator named to
mediate a matter under this Part, shall not be liable for any act or
omission in connection with a mediation administered pursuant to these
Procedures.
Mediation Ground Rules
Sec. 55. (a) The following Ground Rules are established to govern
the mediation of a matter. The parties to a mediation may agree to
amend any or all of the Ground Rules at any time. The Ground Rules are
intended to be standards of conduct for the parties and the
mediator. [[Page 31524]]
(b) Mediation is voluntary and any party may withdraw from
mediation at any time prior to the execution of a written settlement
agreement by giving notice of withdrawal to the mediator, the other
parties, and the Director.
(c) The mediator shall act as a neutral, impartial, facilitator of
the mediation process and shall not have any authority to determine
issues, make decisions or otherwise resolve the matter.
(d) Following the selection of a mediator, the mediator, all
parties and their representatives will meet in person or by conference
call for all mediation sessions, as determined by the mediator or by
mutual agreement of the parties. The mediator shall facilitate, through
joint sessions, caucuses and/or other means, discussions between the
parties, with the goal of assisting the parties in reaching their own
resolution of the matter. The mediator shall determine the procedure
for the conduct of the mediation. The parties and their representatives
agree to cooperate with the mediator in ensuring that the mediation is
conducted expeditiously, to make all reasonable efforts to be available
for mediation sessions, and to be represented at all scheduled
mediation sessions either in person or through a person with authority
to settle the matter.
(e) The mediator may meet with and communicate separately with each
party on their representative. The mediator shall notify all other
parities of any such separate meetings or other communications.
(f) The parties agree to attempt, in good faith, to negotiate a
settlement of the matter submitted to mediation. Notwithstanding that a
matter is being mediated, the parties may engage in direct settlement
discussions and negotiations separate from the mediation process.
(g) Mediation is intended to be private and confidential. The
parties and the mediator agree not to disclose, transmit, introduce, or
otherwise use opinions, suggestions, proposals, offers, or admissions
obtained or disclosed during the mediation by any party or the mediator
as evidence in any action at law, or other proceeding, including a
lawsuit or arbitration, unless authorized in writing by all other
parties to the mediation or compelled by law, except that the fact that
a mediation has occurred shall not be considered confidential.
Notwithstanding the foregoing, the parties agree and acknowledge
that the provisions of this subsection shall not operate to shield from
disclosure to the Association or any other regulatory authority,
documentary or other information that the Association or other
regulatory authority would be entitled to obtain or examine in the
exercise of its regulatory responsibilities.
The mediator will not transmit or otherwise disclose confidential
information provided by one party to any other party unless authorized
to do so by the party providing the confidential information.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in Sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Introduction
The NASD is the premier securities industry arbitration forum. The
more than 5,500 cases filed with the NASD in calendar year 1994
represented 82 percent of all securities arbitrations filed in all
forums combined (including the American Arbitration Association) and 86
percent of all arbitrations filed with self-regulatory organizations.
The volume of arbitration cases has been growing dramatically since the
U.S. Supreme Court in 1987 recognized the enforceability of predispute
arbitration agreements with respect to securities law claims.
Coincidentally with the growth in volume, the NASD has noted that
arbitration has become increasingly complex, costly, time-consuming and
resembling of court litigation to the point that some of the advantages
of arbitration as a low cost, swift, alternative to judicial resolution
of disputes are disappearing. The result of this trend has been renewed
interest in other forms of alternative dispute resolution that would
recapture the low cost and time saving that arbitration once provided.
To that end, the NASD has determined that mediation could serve as a
valuable alternative to arbitration for all parties. The goal of
mediation is to explore and come to a settlement of an outstanding
dispute without resort to adversarial adjudication. Accordingly, the
NASD is proposing to adopt a new Part IV to the Code setting forth
rules to govern the mediation of disputes administered by the NASD.
Description of Proposed Mediation Rules
The NASD published Notice to Members 95-01 (``NTM 95-01'') in
January 1995 requesting comment on proposed Mediation Rules. The
comments received by the NASD are discussed below and a copy of NTM 95-
01 is attached to the NASD's filing as Exhibit 2. The proposed
Mediation Rules, as revised in response to the comment letters received
and as a result of further internal NASD review, have been drafted to
preserve the elements of the procedural structure envisioned in the
rules published in NTM 95-01, while eliminating those portions that
were educational in nature. The proposed Mediation Rules have been
structured, by subject, as follows:
1. General Scope and Authority
2. Submission of Eligible Matters
3. Stay or Delay of Arbitration Pending Mediation
4. Mediator Selection
5. Liability Limitation
6. Ground Rules
The Mediation Rules are proposed to be incorporated into the Code
as a new Part IV, with provisions matching the structure referred to
above, and numbered consecutively with the current provisions of the
Code. This structure permits reference in the proposed Mediation Rules
to both the subject matter jurisdiction of the Code and the arbitrator
disclosure provisions as they apply to mediators.
Record of Sessions. The NASD is proposing to amend Section 37 of
the Code to add a new paragraph (b) to prohibit the keeping of a
verbatim record of any mediation session conducted pursuant to the
proposed rules. The NASD believes that a verbatim record is not
consistent with the goals or methods of mediation; a free-flowing and
confidential exchange of views, opinions, proposals and admissions.
Fees. The fees for mediations are set forth as amendments to
Sections 43 and 44 of the Code. The NASD is proposing that the
administrative fees of the NASD for administering a mediation set forth
in proposed Subsections 43(i) and 44(j) will only be charged when there
is no Association arbitration pending. Where there is no arbitration
pending, under proposed Subsection 43(i) the NASD will charge each
party $150 to administer the mediation of a public
[[Page 31525]] customer matter and, under proposed Subsection 44(j),
the NASD will charge each party $250 to administer the mediation of an
industry matter.
The fees will be assessed for each matter submitted to mediation.
Pursuant to proposed Section 5, discussed below, a matter is deemed
submitted to mediation when the Director has received an executed
mediation Submission Agreement from all parties.\4\
\4\The NASD is developing a standard form mediation Submission
Agreement containing terms essential to the NASD. A copy of the
Submission Agreement will be provided to all parties.
In addition, proposed Subsections 43(j) 44(k) provide that the
parties shall pay all of the mediator's charges, including travel and
other expenses. The NASD proposes to set forth the mediator's charges
in the Submission Agreement and they will be apportioned equally among
the parties unless they agree otherwise. The NASD also will make an
initial estimate the mediator's charges based on the anticipated length
of the session or sessions The parties will be required to deposit
their proportional share of such estimated charges with the NASD prior
to the first mediation session.
The NASD's standard mediator charges will be $150 per hour,
although the parties may agree to pay different charges for a
particular mediator. While the NASD intends to make its best efforts to
make mediators available at the specified hourly rate, some qualified
mediators may decline to serve unless compensated at a higher rate.
Finally, the NASD intends that the mediator's hourly fee for both
joint sessions (except for the first session) and separate sessions
will be assessed for each half hour or portion thereof. In addition,
the mediator's hourly rate for separate meetings will be apportioned
equally among all parties without regard to the actual amount of time
each party has spent with the mediator. The NASD believes that all
parties benefit equally from the mediator's efforts in meeting with
each party even if the mediator spends more time with one than the
other.
General Scope and Authority. The NASD is proposing to adopt new
Section 50 to establish the scope and authority of the rules. Proposed
Section 50 provides that the rules apply to mediations administered by
the Association and calls for the designation of a Director of
Mediation to administer mediations. Section 50 also specifies that the
Director of Mediation will consult the National Arbitration Committee
(``Committee'') on administering the Mediation program and the
Committee, as necessary, may make recommendations concerning the
administration of the Mediation Program to the Director and recommend
amendments to the rules to the Board. Finally, Section 50 states that
neither any mediator nor the NASD shall have any authority to compel a
party to submit to mediation or to settle a matter. This last provision
is intended to clarify the voluntary nature of mediation.\5\
\5\The NASD intends to solicit participation in mediation by
approaching parties to arbitration cases to advise them about
mediation, explain the program and its merits and explore whether
mediation might meet the needs of the parties. The NASD believes an
outreach program such as this will increase the utilization of
mediation and reduce the number of cases going to hearing.
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Submission of Eligible Matters. Proposed Section 51 provides that
any matter, or part of a matter (such as procedural issues), eligible
for arbitration under the NASD's Code may be mediated. Any ambiguities
about the eligibility of a matter for mediation will be decided by the
Director. Proposed Section 51 also states a matter will be deemed
submitted when the Director has received an executed mediation
Submission Agreement from each party. The submission of a matter
triggers the obligation to pay applicable fees and initiates the NASD's
activities in finding a mediator and making arrangements for facilities
for the mediation.
The NASD anticipates that indications of interest in mediation will
be solicited by the Director, as well as expressed informally by
parties. When an indication of interest is expressed, the Director will
seek commitments to participate from other parties. Once those
commitments are obtained, either orally or in writing, the Director
will forward a mediation Submission Agreement to the parties for
execution.
Stay or Delay of Arbitration Pending Mediation. Proposed Section 52
provides that any arbitration pending at the time of a mediation will
not be stayed or delayed unless the parties agree. The NASD believes
this provision is important to prevent gamesmanship through the use of
mediation as a delaying tactic.
Mediator Selection. Proposed Section 53 provides for the
appointment of mediators and permits the parties to select a mediator
from a list supplied by the Director, or to obtain, on their own, a
non-NASD mediator. If the parties do not act to select a mediator, the
Director will assign a mediator. The parties will also be provided with
information relating to the mediator's employment, education, and
professional background, as well as information on the mediator's
comply with the same background disclosure requirements as arbitrators.
Finally, proposed Subsection 53(c) prohibits a mediator from
serving as an arbitrator or from representing any party to a mediation
in any subsequent arbitration proceeding relating to the subject matter
of the mediation. The NASD does not believe that mediators, having
served as a neutral in a position of trust and confidence with the
parties, should be permitted to serve either as an arbitrator or as an
advocate of on party with respect to matters that the has knowledge of
due to his involvement with both parties. The NASD also believes that
state law, attorney codes of ethics, and mediator cods of conduct\6\
provide sufficient protection for parties in judicial forums.
\6\The American Bar Association (``ABA'') is considering draft
mediator standards of conduct. It is anticipated that the ABA will
approve the draft standards at its next meeting. Draft Standard III
states in pertinent part that ``[w]ithout the consent of all
parties, a mediator shall not subsequently establish a professional
relationship with one of the parties in a related matter, or in an
unrelated matter under circumstances which would raise legitimate
questions about the integrity of the mediation process.''
Liability Limitation. Proposed Section 54 provides for the
limitation of liability of mediators, the Association, and its
employees, for any act or omission in connection with a mediation
administered by the NASD under the rules.
Ground Rules. Proposed Subsection 55(a) states that the Section
sets forth standard Ground Rules government mediations and permits the
parties to amend any of the Ground Rules at any time. The Subsection
also provides that the Ground Rules are intended to be standards of
conduct for the parties and for the mediation. The NASD intends that
the parties be able to tailor the ground rules governing their
mediation to meet their needs.
Proposed Subsection 55(b) states that mediation is voluntary and
that parties may withdraw from a mediation at any time prior to the
execution of a settlement agreement by giving written notice of
withdrawal to the mediator, the other parties, and the Director. This
provision is intended to clarify that, while the goal of mediation is
to explore and settle outstanding disputes, if possible, the proposed
rules are process oriented, not result oriented. The NASD does not
intend that any party will be subject to any compulsion or coercion to
come to a particular conclusion of a mediation. The process is
completely voluntary and any party may withdraw from a mediation at any
time and for any reason, or for no reason at all. If at any time a
party feels that continuing [[Page 31526]] with a mediation is not in
his interests he is free to terminate the mediation.
Proposed Subsection 55(c) establishes that the mediator's role is
to act as a neutral, impartial, facilitator, without authority to
impose decisions or a settlement on the parties.
Proposed Subsection 55(d) requires that the parties and their
representatives meet jointly with the mediator, in person or by
conference call as determined by the mediator or by mutual agreement of
the parties. The mediator will facilitate through joint sessions,
caucuses and/or other means, discussions between the parties on the
subject matter of the mediation.
Proposed Subsection 55(d) also provides that the mediator will
determine the procedure for the mediation and the parties agree to
cooperate with the mediator in conducting the mediation expeditiously,
to make reasonable efforts to be available for mediation sessions, and
to be represented at all sessions either in person or by someone with
authority to settle the matter. This subsection is intended to ensure
that common obstacles to expeditious, effective mediation are avoided
and it sets forth rules that will discourage dilatory conduct and
prevent gamesmanship. Parties failing to adhere to these standards send
a strong signal that they are not interested in mediating in good
faith.
Proposed Subsection 55(e) permits the mediator to meet with and
communicate separately with each party, provided the mediator notifies
the other parties. This is intended to permit the mediator to take
steps to keep the mediation on track, if necessary, by initiating
separate communications. These private caucuses are intended to provide
the mediator with an opportunity to explore candidly each party's
underlying interests and the strengths and weaknesses of their
positions; however, the mediator will not disclose confidential
information in violation of the confidentiality provisions. Subsection
55(g), discussed below, bars the mediator from disclosing one party's
confidential information to another party without authorization.
Proposed Subsection 55(f) sets forth the goal of mediation--to
negotiate a settlement in good faith. The Subsection also permits
direct negotiations between the parties outside of the mediation
process.
Proposed Subsection 55(g) provides that mediation is intended to be
private and confidential. The Subsection obligates the parties and the
mediator not to disclose or otherwise communicate anything disclosed
during the mediation in any other proceeding, unless authorized by all
other parties to the mediation. The Subsection permits disclosure if
compelled by law, which provides for situations where a party is
subpoenaed or where there are regulatory requirements, such as the
disclosures required in Form U-4 or under Article IV, Section 5 of the
Rules of Fair Practice. This Subsection also provides expressly that
the fact that a mediation occurred is not confidential.
Proposed Subsection 55(g) also makes clear that the confidentiality
provisions will not operate to shield from disclosure documentary or
other information that the Association or other regulatory authority
would be entitled to obtain or examine in the exercise of its
regulatory responsibilities. Thus, a party could not refuse to disclose
that information to the NASD or an opposing party in civil litigation
under the confidentiality clause by disclosing documentary or other
information during the course of a mediation and then claiming that it
is confidential.
In addition, the Subsection bars the mediator from disclosing one
party's confidential information to another party without
authorization, which memorializes a standard practice of mediators.
The NASD is requesting that the proposed rule change be effective
within 45 days of SEC approval.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act\7\ in that the proposed
rule change will facilitate the dispute resolution process for all
participants by providing an alternative to adversarial adjudication of
disputes resulting in lower-cost, quicker resolution of disputes.
\7\15 U.S.C. Sec. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
The proposed rule change was published for comment by the NASD in
Notice to Members 95-01 (January 1995). Five comments were received in
response thereto. Of the 5 comment letters received, all generally were
in favor of the proposed rule change.
As noted above, the proposed rules as published for comment in
Notice to Members 95-01 are substantially different in structure from
those being submitted for approval in this proposed rule change. The
proposed rule change described in this filing represents modifications
that respond to the comments received and to other considerations
developed following the publication of Notice to Members 95-01.
The Securities Industry Association (SIA) urged the NASD to seek
experienced mediators, but said that the amount of detail sought by the
Mediation Profile Questionnaire could limit the size of the mediator
pool. The SIA also expressed concern about the meaning of paragraph
(4)(B)\8\ of the Ground Rules which provides that the mediator will
decide when to hold ``separate meetings with the parties.'' The SIA
said that the typical mediation begins with a joint session at which
all parties are given an opportunity to express their positions, after
which the parties retire to separate rooms and the mediator shuttles
back and forth between them trying to resolve the controversy. The SIA
said it is not concerned about paragraph 4(b) unless it is contemplated
that a mediator would hold separate sessions on separate days with the
involved parties. The SIA believes this would not be productive. The
SIA would prefer that paragraph 4(b) state simply ``[t]he mediator will
decide when to hold meetings with the parties.''
\8\The citations of the commenters to subsections of the
proposed rules correspond to the proposed rules in Notice to Members
95-01. They do not correspond to the proposed rule contained herein
because the proposed rules as published for comment by the
Association were substantially different in structure.
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The SIA also asks that the proposed rules provide ``the mediator
shall destroy all notes and other records of the mediation once the
matter is concluded whether by settlement or by decision of the parties
not to proceed further.'' The SIA said that destruction of notes and
records is a general practice of mediators and should be included in
the Ground Rules.
The SIA also expressed concern that the mediator session fees
contemplate the parties agreeing to more than one mediator. The SIA
believes that the introduction of additional mediators will only
prolong the process by introducing potential complexity, confusion and
disagreement over the appropriate course of action for the mediators,
and recommends that any suggestion of multiple mediators be
eliminated. [[Page 31527]]
The SIA also suggests the confidentiality provisions of the
proposed rules be amended to require the parties to keep confidential
any refusal by any party to submit to mediation. The SIA argues that
there can be any number of reasons for a party deciding not to mediate
and no inference should be drawn from such a decision. The SIA also
asks that a party seeking mediation should agree that the refusal of
the other party to mediate will not be introduced as evidence into any
arbitral, judicial or other proceeding.
The SIA also asks for further consideration about who is the proper
party to initiate mediation and whether mediation can be initiated
after the first hearing in an arbitration. Finally, the SIA asks that,
in order to prevent breaches of the agreement and forestall future
litigation on the same issues, a mechanism be created to reduce the
agreement to an arbitration award at the request of a party.
The Association believes that the changes in the proposed rules are
responsive to the SIA's concerns. Specifically, with respect to the
SIA's suggested language, ``[t]he mediator will decide when to hold
meetings with the parties,'' the NASD has determined not to adopt the
SIA's proposed language. While the NASD understands the SIA's concern
about ``separate meetings,'' the NASD believes nevertheless that such
separate meetings may be necessary and productive and that the rules
should provide for such meetings. The NASD has, however, modified the
proposed rules to eliminate any suggestion that such separate meetings
would occur prior to the first joint meeting of the parties. In
addition, the NASD has determined to eliminate any references to
multiple mediators in response to the concerns raised by the SIA.
Associated Securities Corp. (ASC), an NASD member firm, expressed
support for the proposed mediation program. ASC also said that
mediation by teleconference should not be allowed because personal
contacts are important to the mediation process. ASC also said that the
mediators should not make enforcement referrals in order to facilitate
frank and open discussion with the mediator, during the course of the
mediation sessions.
The Association believes that teleconference sessions by the
agreement of the parties may be an effective option that should be
available to the parties. With respect to disciplinary referrals,
mediators as a matter of course do not make such referrals; however,
the NASD does not believe it is necessary to specify such a
prohibition.
Robert Burke of the San Francisco law firm of Pettit & Martin
commented favorably on the proposed mediation rules, but had two
suggestions. First, Mr. Burke believes mediators should disclose their
association with the NASD as an NASD arbitrator because the mediator's
history as an arbitrator could have an adverse effect on the public
customer's willingness to accept the mediator's neutrality. Moreover,
the NASD should consider whether to include arbitrators in its mediator
pool because good arbitrators do not generally make good mediators.
Second, Mr. Burke believes the mediator should not draft settlement
agreements as the proposed rules permit because in mediation the
settlement is the parties', not the mediator's. Moreover, the mediator
could inadvertently or by design fail to include a term that had been
part of the parties' understanding, potentially resulting in liability
for the mediator and the sponsoring organization.
The Association believes that Mr. Burke's comments with respect to
arbitrator selection are addressed in the background information
acquisition and disclosure process specified in the proposed rule
change. With respect to Mr. Burke's second comment the NASD has
eliminated that provision from the proposed rule change.
Joan Protess & Associates suggested that the proposed Mediation
Program could be made more accommodating by (1) subsidizing some of the
mediator's charges, and (2) designating a mediator to invite the
parties and their counsel to mediation.
The NASD believes this commenter's comments are related to the
NASD's internal management decisions related to the administration of
the program and do not require a response. The issues raised, however,
remain under continuing consideration.
Lawyers Mediation Service Corporation (LMSC) commented that the
proposed Mediation Program should be administered separately from the
arbitration program because the two are different in their functions
and in their goals.
The mediation and arbitration programs are being administered
separately under the single management umbrella of the Arbitration
Department.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. by order approve such proposed rule change, or
B. institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submission should refer to File No. SR-NASD-95-25 and should
be submitted by July 6, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-14686 Filed 6-14-95; 8:45 am]
BILLING CODE 8010-01-M
